Merger of Sister Companies / Swiss Tax Consequences

Preliminary remarks

A real merger of two sister companies (absorption or combination) is subject to simplified requirements from a civil law perspective (Art. 23 und 24 FusG). Furthermore, a share exchange according to Art. 7 FusG or a compensatory cash payment pursuant to Art. 8 FusG is not required for sister companies with fully identical shareholders. Merger of parallel companies without fully identical shareholders requires a share exchange and possibly compensatory cash payments.



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Checklist - Tax consequences of a Merger of Sister Companies

                Taxes for


Types of taxes

Merged B AG


Merging and surviving A AG


Shareholder, individual, shares held as private asset (private investor)

Shareholder, individual, shares held as business asset or shareholder, legal entity, without participation relief

Shareholder, legal entity benefiting participation relief

Income taxes (FITA/CCITHA)Tax deferral on hidden assets pursuant to Art. 61 para. 1 FITA, Art. 24 para. 3 CCITHA, provided: 

- Tax liability in Switzerland is maintained, and 

- Previous taxable value of assets is transferred to A AG

- Possibly no tax-deferral if the merged company is a shell company   
- Tax-exempt open and hidden capital contributions (Art. 60 lit. a FITA)

- Losses of the acquired company may be used by the acquiring company 


- The use of a company's own shares can lead to a tax on earnings


  

- Increase in nominal value (analog bonus shares) generally taxable as earnings from assets (at the cantonal level, at most non-taxable)

- Nominal earnings can be offset with nominal losses and capital contribution reserves 


- Compensatory payments from a company generally constitute taxable earnings from assets (set-off against nominal losses possible) 

- Cash-out merger leads to the taxable total liquidation of the acquired company 

- Squeeze-out severance payments generally constitute taxable liquidation proceeds (only tax-exempt if severance payments of other shareholders arise) 
- Provided the taxable value of the shares is maintained, no tax consequences 

- Compensatory payments and severance payments in a cash-out merger are regarded as taxable income (possibly neutralized via simultaneous amortization)  


- Provided the taxable earnings value of the shares is maintained, no tax consequences

Compensatory payments and severance payments are regarded in a cash-out merger as taxable earnings (check participation exemption)
Real estate capital gains tax/Real estate transfer tax- If real property is transferred, there is a transfer of legal ownership from a civil law perspective, but from a tax law perspective, the payment of tax is postponed according to Art. 12 para. 4 lit. a CCITHA

-Real estate transfer tax
: generally exempt under Art. 103 FusG
    
Withholding tax (WHTA)- Liquidation proceeds (Art. 4 para. 1 lit. b WHTA) but tax- deferral under Art. 5 para. 1 lit. a WHTA, provided all distributable earnings are maintained

- Bonus shares from open reserves or compensatory cash payments 
are taxable (a set-off with nominal share value losses or capital contribution reserves is possible)
 - Check repayment claim of withholding tax or reporting procedure- Check repayment claims of withholding tax or reporting procedure- Check repayment claims of withholding tax or reporting procedure
Stamp tax (STA) (Stamp issuance tax/Stamp transfer tax) Stamp issuance tax: exempt under Art. 6 para. 1 lit. abis STA 

Stamp transfer tax: Even if securities dealers are involved, exempt under Art. 14 para. 1 lit. i STA
   
Value added tax (VAT)- Mostly transfer of a going concern notification applicable (Art. 38 VAT Act)

- Changes in a VAT-group must be notified
- At the most, beginning of VAT duty   

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